How the bank system pays its debts

Before everything else, the NBU sees no other option than to put on the auction block the Ukrayina banking complex. Tihipko claims that further lease of the bank property is forbidden by law. But from the practical standpoint extending the lease makes a certain amount of sense. Note that, to date, the claims of only the first echelon of Ukrayina creditors have been satisfied (these are by and large individuals whose deposits did not exceed UAH 50,000 each). Under the law dated March 7, 2002, creditors of the second echelon are the remaining individuals and organizations that invested in Ukrayina in exchange for property collateral. The claims of the second echelon are estimated at UAH 515.5 million. According to Mr. Tihipko, the NBU has passed a decision to eschew its own right of priority in this echelon. Thus, the remaining UAH 13 million, as of this writing, are slated to be returned to individuals on May 15-16. This leaves us the third echelon creditors. The law mentioned refers to them as “all remaining,” which all entities that invested money in Bank Ukrayina without collateral actually are. The liabilities of the bankrupt bank to this group of creditors come to a whopping UAH 919 million. The bank’s outstanding loans come to roughly the same (UAH 1.1 billion plus UAH 430 million interest).

Now that the situation with the diddled depositors is more or less clear, let us move on to the best part, that is, actions by the NBU and the possible intent of the government. As mentioned, the higher-ups have decided to sell Bank Ukrayina’s property. Officially, everything will be sold at once and not piecemeal. The Cabinet of Ministers is going to enter its bid for the tender that will be held in June if approved by the parliament. Where will the government get the money? Tihipko’s answer to that was simple, albeit somewhat ambiguous. The gist of the scheme is this: 1. the NBU has a surplus, 2. budget receipts and, accordingly, expenditures are being adjusted to reflect this unplanned surplus (UAH 550 million), 3. the Cabinet of Ministers uses these funds to bid in the tender and is declared the successful bidder, and 4. UAH 550 million is transferred to the Ukrayina account, and roughly the same amount is returned to the NBU, which in the late 1990s supported Bank Ukrayina with cash infusions using property as collateral. Everybody is happy and everything seems fine.

Only the creditors of the third echelon will face problems. According to Tihipko, money will be returned to them as Ukrayina’s debtors repay their loans. The bank’s assets, however, include UAH 180 million of securities, but, to quote the NBU governor, “they sell poorly.” Yet, despite the fact that the lion’s share of debts to Bank Ukrayina seem to be unrecoverable (Tihipko said recovering them “will take years”), the scheme mentioned is full of intricacies. First, the NBU, which ruled out the possibility of a surplus during parliamentary budget hearings, has after all found precisely such a possibility. Second, Ukraine’s government will buy Bank Ukrayina property using the bank’s liabilities to the NBU. Third, it is rumored at the NBU that Pryvatbank will compete with the Cabinet of Ministers in the tender. Fourth, The Day has learned that Bank Ukrayina assets have been appraised taken separately. Fifth, there is the unanswered question of what the government needs Bank Ukrayina’s immovable property for. Sixth and finally, there are fears that the courts, which are in dire need of premises, will receive nothing like, say, Bank Ukrayina’s oblast administrative buildings in Lviv’s historic center.

Finally, it is unclear why the powers that be consider it more expedient to invent complex financial schemes to sell property (with the NBU eventually recovering what it had spent before), while scores of creditors of Bank Ukrayina are waiting to get their money back. Why, if not under law, is the NBU — whose leadership used to care so much about Bank Ukrayina as to delegate its own people (currently on trial) to manage the bank — to the second echelon of creditors? Why is the government — which under Finance Minister Ihor Mitiukov proposed to close the problem of bankruptcy through an emission of domestic bonds — now laying claims to Bank Ukrayina’s property? Perhaps this is the fate of Ukrayina. Now it is at the mercy of the parliament, where there are many debtors of Bank Ukrayina and former officials who inadvertently contributed to the insolvency of the bank.

INCIDENTALLY

On May 14, former NBU First Deputy Chairman of the Board Volodymyr Bondar was sentenced to five years in prison and stripped of the right to occupy executive posts in state-run or private structures. Bondar was detained in March 2001 and indicted for malfeasance. In particular, Bondar has been accused of signing on December 16, 1997, a “clearly disadvantageous agreement” with Credit Swiss First Boston (Cyprus), under which $75 million worth of Ukraine’s gold and currency reserves were deposited with the bank, with the resulting losses for the state in excess of $5 million. Viktor Yushchenko, Volodymyr Bondar’s former boss, called this case “settling political scores.” Current NBU Governor Serhiy Tihipko declined comment on the jailing of Bondar as well as Yushchenko’s involvement with Bank Ukrayina. Tihipko does not think that “Ukrayina’s bankruptcy can be blamed on any single person.”